Final Actuarial Valuation Report

61 Pages·2017·0.94 MB·English

ORLANDO UTILITIES COMMISSION

PENSION PLAN

Actuarial Valuation Report as of October 1, 2017

ANNUAL EMPLOYER CONTRIBUTION FOR THE FISCAL YEAR ENDING

SEPTEMBER 30, 2019

February 2, 2018

Board of Trustees
Orlando Utilities Commission Pension Plan
Orlando, Florida

Re: Orlando Utilities Commission Pension Plan
Actuarial Valuation as of October 1, 2017 and Actuarial Disclosures

Dear Members of the Board:

The results of the October 1, 2017 Annual Actuarial Valuation of the Orlando Utilities Commission Pension Plan
(the “Plan”) are presented in this report.

This report was prepared at the request of the Board of Trustees and is intended for use by the Plan and those
designated or approved by the Board of Trustees. This report may be provided to parties other than the Orlando
Utilities Commission only in its entirety and only with the permission of the Board of Trustees. GRS is not
responsible for unauthorized use of this report.

The purpose of the valuation is to measure the Plan’s funding progress and to determine the employer
contribution rate for the fiscal year ending September 30, 2019. This report should not be relied on for any
purpose other than the purposes described herein. Determinations of financial results associated with the
benefits described in this report for purposes other than those identified above may be significantly different.

The computed contribution rate shown on page 1 is best viewed as the minimum contribution rate that complies
with the Board of Trustees’ funding policy. Users of this report should be aware that contributions made at that
rate do not guarantee benefit security. Given the importance of benefit security to any retirement system, we
suggest that contributions in excess of those presented in this report be considered.

The contribution rate in this report is determined using the actuarial assumptions and methods disclosed in
Section B of this report. This report includes risk metrics in Section A but does not include a more robust
assessment of the risks of future experience not meeting the actuarial assumptions. Additional assessment of
risks was outside the scope of this assignment. We encourage a review and assessment of investment and other
significant risks that may have a material effect on the Plan’s financial condition.

The findings in this report are based on data and other information through September 30, 2017. Future
actuarial measurements may differ significantly from the current measurements presented in this report due to
such factors as the following: plan experience differing from that anticipated by the economic or demographic
assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the
natural operation of the methodology used for these measurements (such as the end of an amortization period
or additional cost or contribution requirements based on the Plan’s funded status); and changes in plan
provisions or applicable law. The scope of an actuarial valuation does not include an analysis of the potential
range of such future measurements.

TABLE OF CONTENTS

Section Title Page

A Discussion of Valuation Results 1

B Valuation Results

1. Participant Data 4
2. Actuarially Determined Employer Contribution 5
3. Actuarial Value of Benefits and Assets 6
4. Calculation of Employer Normal Cost 7
5. Liquidation of the Unfunded
Actuarial Accrued Liability (UAAL) 8
6. Open Group Projection 9
7. Actuarial Gains and Losses 10
9. Recent History of Valuation Results 16
10. Recent History of UAAL and Funded Ratio 18
11. Recent History of Required and Actual
Contributions 19
12. Actuarial Assumptions and Cost Method 21
13. Glossary 26

C Pension Fund Information

1. Summary of Assets at Market Value 28
2. Summary of Fund’s Income and Disbursements 29
3. Development of Actuarial Value of Assets 30
4. Investment Rate of Return 31

D Financial Accounting Information

1. FASB No. 35 32

E Miscellaneous Information

1. Reconciliation of Membership Data 33
2. Active Members Data 34
3. Inactive Members Data 36
4. Projected Payroll and Retirement Benefits 37

F Summary of Plan Provisions

1. Traditional Pension Plan Provisions 39
2. Cash Balance Provisions 44

Orlando Utilities Commission Pension Plan

Actuarial Valuation as of October 1, 2017
S A
ECTION
D V R
ISCUSSION OF ALUATION ESULTS
DISCUSSION OF VALUATION RESULTS

Nature of the Plan

The Plan consists of a traditional pension plan and a cash balance plan. The former covers full-time employees
hired before January 1, 1998. Those hired on or after January 1, 1998 and who were still employed on or after
May 1, 2011 are covered by the cash balance plan. Additionally, approximately 80 members, who were hired
prior to January 1, 1998 who had elected to transfer from the traditional pension plan to the defined contribution
plan who were still employed on or after May 1, 2011, are covered by the cash balance plan. This valuation
treats the two benefit structures applicable to two employee subgroups as one blended defined benefit plan with
unallocated assets. All plan assets are available to pay all benefits to any plan member.

Comparison of Required Employer Contributions

The minimum required employer contribution developed in this year’s valuation is compared below with that of
the previous valuation.

For FYE For FYE For FYE
9/30/2019 Based 9/30/2018 Based 9/30/2017 Based
on 10/1/2017 on 10/1/2016 on 10/1/2015
Valuation Valuation** Change Valuation
Required Employer Contribution $ 2 2,490,926 $ 2 2,613,555 $ ( 122,629) $ 2 1,875,854
As % of Covered Payroll 24.02% 25.36% (1.34) % 27.12%
Estimated Employee Contribution* $ 5 57,000 $ 6 53,296 $ ( 96,296) $ 7 44,498
As % of Covered Payroll 0.59% 0.73% (0.14) % 0.92%
Total Contributions $ 23,047,926 $ 23,266,851 $ ( 218,925) $ 2 2,620,352
As % of Covered Payroll 24.61% 26.09% (1.48) % 28.04%

* 4% member contribution rate for employees covered by the traditional pension plan.
** Reflects Actuarial Impact Statement dated June 15, 2017.

The required contribution has been calculated as though payments would be made at the end of each quarter.
Pursuant to Chapter 112, Florida Statutes, employer contributions must be made on at least a quarterly basis.

The actual employer contribution for the year ending September 30, 2017 was $21,875,854 compared to the
required contribution of $21,875,854.

Orlando Utilities Commission Pension Plan 1
Actuarial Valuation as of October 1, 2017
Revisions in Benefits

The Plan was amended to modify the definition of “Accrued Benefit” to increase the benefit multiplier from 2.5%
to 4.1% and 2.7% for members whose job position is “Chief Executive Officer” or “Chief Financial Officer,”
respectively. The impact of this amendment is measured in the Actuarial Impact Statement dated June 15, 2017.

Revisions in Actuarial Assumptions

There were no revisions in the actuarial assumptions since the last actuarial valuation.

Revisions in Methods

There were no revisions in methods since the last actuarial valuation.

Actuarial Experience

There was a net actuarial gain of $1,707,339 since the last valuation (reflecting the actuarial impact statement
dated June 15, 2017). The gain was primarily due to a higher than expected investment return (on the smoothed
actuarial value of assets) of 8.9% compared to the assumed rate of 7.25%, and fewer than expected retirements
and terminations in the cash balance plan (9 actual versus 16 expected, and 44 actual versus 77 expected,
respectively). The return on the market value of assets was 14.1%. The gain was partially offset by experience
losses due to a higher 2018 cost-of-living adjustment than expected for eligible retirees in the traditional pension
plan (2% actual versus 1% expected), lower mortality experience than expected, a higher cash balance interest
crediting rate in 2017 and 2018 than expected (5.5% and 6.0%, respectively, versus 5.0% assumed), more
retirements than expected in the traditional pension plan (31 actual versus 28 expected), and higher than
expected pay increases (5.2% actual versus 4.6% expected). The net actuarial gain for the year resulted in a
decrease in the annual required employer contribution of $187,268, or 0.20% of covered payroll.

Analysis of Change in Employer Contribution

The components of change in the required employer contribution are as follows:

Contribution Rate Last Year* 25.36 %
Experience (Gains) or Losses (0.20)
Payment on Unfunded Liability (0.94)
Change in Employer Normal Cost Rate (0.19)
Administrative Expense (0.01)
Revision in Assumptions -
Change in Method -
Plan Amendment -
Contribution Rate This Year 24.02

* Reflects Actuarial Impact Statement dated June 15, 2017.

Orlando Utilities Commission Pension Plan 2
Actuarial Valuation as of October 1, 2017
Funded Ratio

The funded ratio as of October 1, 2017 is 75.9% compared to 73.1% as of October 1, 2016. The funded ratio is
equal to the Actuarial Value of Assets divided by the Actuarial Accrued (Past Service) Liability.

Variability of Future Contribution Rates

The Actuarial Cost Method used to determine the contribution rate is intended to produce contribution rates
which are generally level as a percent of payroll. Even so, when experience differs from the assumptions, as it
often does, the employer’s contribution rate can vary significantly from year-to-year.

Over time, if the year-to-year gains and losses offset each other, the contribution rate would be expected to
return to the current level.

The Market Value of Assets exceeds the Actuarial Value of Assets Available for Benefits by $22,233,226 as of the
valuation date (see Section C). This difference will be gradually recognized over the next several years causing
the required contribution to decrease slightly, in the absence of offsetting losses.

Relationship to Market Value

If we were not using an asset smoothing method, the required contribution rate for the fiscal year ending
September 30, 2019 would have been 21.37% ($20,009,621), and the funded ratio as of October 1, 2017 would
have been 80.4%. This is an increase from 73.9% as of October 1, 2016.

Conclusion

The remainder of this Report includes detailed actuarial valuation results, financial information, miscellaneous
information and statistics, and a summary of plan provisions.
Orlando Utilities Commission Pension Plan 3
Actuarial Valuation as of October 1, 2017
S B
ECTION
V R
ALUATION ESULTS